Why Tax Planning Is a Year-Round Strategy!
April 15 marks the official end of tax season. However for many people this date should actually be the starting point for the year ahead. While most people view the tax deadline as a finish line it works better when you see it as a chance to get organized for the future.
It is common to only think about taxes once a year. Most people gather their documents and file their returns then hope for a refund and move on. If this is your time thinking about taxes, you might be missing out on ways to keep more of what you earn.
Filing Versus Planning
The secret to long term tax efficiency is understanding how these two things work together.
Filing taxes looks at the past. It is a report of what already happened during the previous calendar year. By the time you sit down to file your return most of your opportunities to save money are already gone.
Tax planning looks at the future. It involves making intentional choices throughout the year to help reduce what you might owe later. This is why staying focused on taxes all year long can make such a big difference for your bank account.
Strategies That Require Time
Many of the best ways to save on taxes cannot be done at the last minute. They need to be managed over time, sometimes even years.
You might consider Roth Conversions to help manage your future tax brackets. You could also look at charitable giving strategies like using a donor advised fund to maximize your deductions. Other options include being strategic about which accounts you pull money from, what type of investments are located in what type of accounts, or timing the sale of investments to offset gains with losses.
It also helps to look at your retirement and health savings account contributions. Making sure these are funded correctly before December 31 can change your tax outcome significantly.
A Year-Round Strategy
Tax decisions impact almost every part of your financial life. Whether you are protecting your estate for the next generation or optimizing your retirement income, taxes are always part of the equation. Planning ahead can even help you manage things like Medicare premium surcharges and capital gains more effectively. This is why tax planning is not just a project to tackle when you are getting ready to file. It works much better as a consistent habit that runs alongside your other financial goals throughout the year.
Taking the Next Step
If your last tax experience felt stressful or disorganized, you can use that feeling to do things differently this year. You can start by asking yourself a few simple questions.
What was the biggest surprise on your return this year? Do you feel like you had control over what you owed? Could starting earlier have helped you avoid a headache?
The goal is to find clarity and stay in control. The sooner you start thinking about what is ahead then the more prepared you will be when the next deadline arrives.
*This content is for educational purposes only and is not intended to provide tax, legal, or accounting advice. Please consult a qualified tax professional regarding your individual situation.
